Proxy advisory firm InGovern Research has recommended that there is a need for separation of management and ownership in the case of chemical company Hikal Limited. In a detailed research report titled: Shareholder Battle Impacting Corporate Governance, it has said that Hikal is a fit case for a new professional Managing Director or Chief Executive Officer to run the company on a day-to-day basis.
The report added that since Hikal operates in a highly competitive sector and in the background of its lukewarm operational performance, the fate of around 75,000 shareholders of Hikal hangs in balance.
Hikal lacks effective representation of minority shareholders
The Board of Hikal lacks effective representation of minority shareholders and badly needs an overhaul with many independent directors serving for long tenures and an ageing Board.
Shareholders stuck between two promoter groups
The two Promoter Groups own 34.84% and 34.01% each while minority shareholders hold 31.15%. The investors are caught in the middle of a battle between two promoter groups that is hurting the company.
Jaidev and Sugandha Hiremath file civil suit against Babasahed Kalyani
According to BSE filing dated March 23, 2023, a civil suit has been filed by Hikal co-promoters Mr. Jaidev Hiremath, and Mrs. Sugandha Hiremath against various entities including listed companies KICL & BFIL and Mr. Babasaheb Kalyani, CMD, Bharat Forge Limited (who is brother of Mrs. Sugandha Hiremath).
InGovern says that the dispute has put Hikal into an uncertain future with respect to its growth plans as management bandwidth could be severely constrained and distracted given that the Managing Director is a member of one of the warring promoter groups.
Kalyani says obligations completed in 1994
Baba Kalyani in its affidavit filed before the Hon’ble Bombay High Court said that the only obligation that was there, was in terms of the shares of Hikal was to give effect to a Buyback Agreement executed in January 1992, which has already been fully given effect to in 1994. A letter addressed way back in 1997 confirms this.
The proxy firm also highlighted that due to these corporate governance issues, institutional investors are staying away. The present management has not contributed to corporate sales and profitability growth and demonstrated irresponsible behaviour.
Hikal censured by National Green Tribunal for illegal chemical discharge
Recently, Hikal was severely censured by the National Green Tribunal for illegal discharge of chemicals. NGT has imposed fines and ordered compensation of over Rs. 17 crores on the company. This resulted in several criminal cases filed against the current Managing Director in the last 2 years.
According to the report, two independent directors of Hikal - Prakash Mehta and Kannan Unni, cannot be considered independent as they have been on the Board of the company for 29 years and 23 years, respectively. The Board needs to be recast by induction of truly independent directors and adhering to SEBI regulations on the proportion of independent directors of 50%.
It added that around 60% of the Board is composed of Directors aged 70 plus years, with 2 independent directors Prakash Mehta and Kannan Unni being aged 80 years.
“Due to the splintered Board between the two warring promoter groups, there is a need for separation of management of the company and its ownership. This is a fit case for a professional Managing Director or Chief Executive Officer to run the company on a day-to-day basis,” it said.
